High Court Of Gujarat
CIT vs. Broach Textile Mills Ltd.
Sections 37(1), 37(3A)
Asst. Year 1984-85
D.A. Mehta & Ms. H.N. Devani, JJ.
IT Ref. No. 65 of 1994
22nd September, 2005
Counsel Appeared
Manish R. Bhatt, for the Applicant : None, for the Respondent
JUDGMENT
MS. H.N. Devani, J. :
The Tribunal, Ahmedabad Bench “C”, has referred the following question under s. 256(1) of the IT Act, 1961 (the Act), at the instance of the CIT, Ahmedabad :
“Whether the Tribunal is right in law and on facts in directing the ITO to exclude the repairs and insurance expenses on motor car for the purpose of calculating disallowance under s. 37(3A) of the IT Act ?”
The assessment year is 1984-85, and the relevant accounting period is 1st April, 1983 to 31st March, 1984. During the relevant previous year, the assessee had incurred motor car expenses amounting to Rs. 2,84,030, which included repairs and insurance expenses. The AO took into consideration the entire motor car expenses for the purpose of calculating disallowance under s. 37 (3A) of the Act. The assessee’s contention that the expenses towards motor car repairs and insurance should not be considered for ascertaining the disallowance under s. 37(3A) of the Act, was negatived by the AO while framing assessment under s. 143(3) of the Act vide order dt. 28th Feb., 1987. The assessee carried the matter in appeal before the CIT(A). Before the CIT(A), it was contended that the motor car expenses included repairs and insurance expenses also, which are allowable under s. 31 of the Act, and could therefore, not have been taken into account for the purpose of calculating disallowance under s. 37(3A) of the Act. Following the decision of the Tribunal, Bombay, in the case of B.A. & Bros. (Bombay) (P) Ltd., wherein it had been held that s. 37(3A) overrides only s. 37(1) and does not override s. 31 under which the repairs, inter alia, of machinery and plant are to be allowed which would cover motor cars, the CIT(A) vide his order dt. 15th Oct., 1987, upheld the contention of the assessee. The CIT(A), accordingly, directed the AO to exclude the motor car repairs and insurance expenses for the purpose of calculation under s. 37 (3A) of the Act.
The Revenue carried the matter in appeal before the Tribunal. The Tribunal vide its order dt. 15th Oct., 1990 upheld the order of CIT(A) and dismissed the appeal. Sec. 37(1) of the Act, as it stood at the relevant time, reads as under : “Any expenditure (not being expenditure of the nature described in ss. 30 to 36 and s. 80VV and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ‘Profits and gains of business or profession’.” Sec. 37(3A) of the Act reads as under : “37(3A) Notwithstanding anything contained in sub-s. (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-s. (3B) exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head ‘Profits and gains of business or profession’.” A plain reading of s. 37(1) of the Act makes it clear that the same is applicable to expenditure not being expenditure of the nature described in ss. 30 to 36 of the Act. Accordingly, the provisions contained in s. 37(3A) would apply only to those items of expenditure that are not covered by ss. 30 to 36, but covered by s. 37(1) of the Act. The non obstante clause in sub-s. (3A) relates only to the computation of allowance referred to in s. 37(1) in respect of expenditure covered by s. 37(1) of the Act. The expenditure in respect of which sub-s. (3A) can be attracted is only that which falls under s. 37 and not under s. 31. The deduction in respect of the expenditure incurred on repairs and insurance of motor car which is plant as defined in s. 43(3) of the Act, is allowable under s. 31 of the Act and not under s. 37 of the Act. Hence, the expenditure incurred on repairs and insurance of motor cars cannot be considered for disallowance under sub- s. (3A) of s. 37 of the Act. Accordingly, the expenditure incurred by the assessee in respect of repairs and insurance of motor car could not have been taken into consideration for the purpose of calculating the aggregate expenditure incurred by the assessee for the purposes of s. 37(3A) of the Act.
6. This view is fortified by a decision of this Court in the case of CIT vs. Ahmedabad Mfg. & Calico Printing Co. Ltd. (1992) 105 CTR (Guj) 322 : (1992) 197 ITR 538 (Guj), wherein while dealing with the question as to whether the expenditure incurred for residential accommodation in the nature of guest-house, would be hit by s. 37(4) of the Act, it was held thus : “The opening non obstante clause of sub-s. (4) of s. 37 makes it clear that the expenditure which is referred to in cl. (i) of sub-s. (4) is one which would be allowable as deduction under s. 37(1). In order to attract the provisions of sub-s. (4), it must first be established that it is an expenditure which is covered by s. 37(1). Sec. 37(1) refers to expenditure (i) which is not an expenditure of the nature described in ss. 30 to 36; (ii) which is not an expenditure of capital nature; and (iii) which is not personal expenditure of the assessee. It is, therefore, evident that if the expenditure in question is an expenditure of the nature described in ss. 30 to 36, it would not fall under s. 37 (1).”
7. It may be noted that a Full Bench of the Kerala High Court in the case of CIT vs. Travancore Cements Ltd. (1999) 157 CTR (Ker)(FB) 395 : (1999) 240 ITR 816 (Ker)(FB) has also taken a similar view, and held as follows :
“As the expenditure on repairs of vehicles including motor cars are covered by s. 31 of the Act which is specifically excluded from the ambit of s. 31(1) of the Act, s. 37(3A) which has application only in respect of the items mentioned in s. 37(3B) of the Act, the non obstante clause in s. 37(3A) shall not have any overriding effect in respect of the other provisions pertaining to the allowances of expenditure under ss. 30 to 36 of the Act. The expenditure towards repairs and premium paid towards insurance of motor cars is deductible under s. 31 of the Act and the same expenditure will not fall within the mischief of s. 37(3A) of the Act.”
8. The Tribunal was, therefore, right in law and on facts in directing the ITO to exclude the repairs and insurance expenses on motor car for the purpose of calculating disallowance under s. 37(3A) of the IT Act. The question is, accordingly answered in the affirmative i.e., in favour of the assessee and against the Revenue.
9. The reference stands disposed of accordingly. There shall be no order as to costs.
[Citation : 280 ITR 335]
